Many of landlords we speak to are still reeling after paying their taxes recently. And many of those we speak to aren’t aware of the ways they could save on their tax bill.
You need to apply these simple changes if you don’t want to be stuck with a higher bill next year as well!
Save Money On Management Fees
If you get a letting agent to manage your tenancy, you can claim back the management fee from tax. But not if you manage your property yourself. So why waist your precious time when you can get an expert to do it for you?
Isa and Savings Allowances
If you earn money from interest, it will be considered as income and should it be taxed. So how can you bring down your bill?
Firstly, all basic-rate taxpayers are allowed a £1,000 personal savings allowance. This means you can earn this amount in interest before payment is due. If you fall in a higher-rate tax bracket, you can earn £500 tax-free.
You should also take advantage of your £20,000 Isa allowance. You won’t save money immediately when putting money in the Isa, BUT all future interests, dividends or capital growth will NOT be taxed.
Report Your Tax On A Cash Basis
From the 2017-18 tax year, landlords’ tax bill will be based on how much rent you received during the year.
In the past, profits were based on incomings earned regardless of whether that money was actually received. So, even if a tenant failed to pay rent, that amount could still be counted as income.
The cash basis can be used by any landlords or partnerships with an income of less than £150,000 per year.
Gain From The Previous Year’s Losses
When you’ve had a bad year, you can soften the blow by carrying that loss over to a new tax year when your profits are higher.
Just keep in mind that you need to apply the losses to profits earned from your rental business – so if you own more than one rental property, you can apply losses on one property to profits on another, but you can’t use losses to offset income from other sources such as your salary.
Deduct Licensing Fees
With stricter legislation requiring landlords to be licensed, often at hefty fees, you can usually deduct that amount from your profits as business expenses.
Claim Those Miles
From April 2017, landlords can claim mileage rates for journeys undertook to their properties. In the past you could only claim actual motoring expenses, now you can choose which method to use.
Mortgage Tax Relief
We’ve discussed this before and it especially applies now after landlords felt the blow of only being able to claim 50% of your interest. Next year it will be 25% and will be phased out in 2020. Even though there isn’t much you can do about this, it’s good to keep in mind.
Costs Of Services
If you pay any service providers like cleaners, gardeners or other maintenance contractors to look after your property, you can deduct this cost from your profit. This doesn’t apply if your tenant pays you a fee for these services.
Claim Back Replaced Items
Even though the wear and tear allowance of 10% is a thing of the past, you can still deduct the cost of replacing domestic items in your furnished property.
Keep in mind that the relief only applies to old appliances that were replaced, not new items you decided to purchase.
Gain From The Capital Gains Tax Allowance
For the 2017-18 tax year, the capital gains tax allowance was set at £11,300 – up from £11,000 in the year before. Now it is up to £11,700.So you can earn as much in profit before paying CGT.
Keep The Different CGT Rate In Mind
If you’re a basic-rate payer, you can expect to pay 18% on profits from property. If you’re a higher or additional-rate payer, you can be expected to pay 28%. But, the good news is that you could pay less CGT if you lived on the property before you decided to rent it out.
Benefit From Capital Improvements
If you renovated your property or built an extension, for example, you may be able to reduce your bill. The easiest way to work it out is to work out how much profit you made from the improvement then deduct the amount you spent on it.
Whatever’s left will be your taxable capital gain.
DO NOT Miss The Deadline
Your tax return is due at midnight on 31 January. If you submit even a few minutes late, you could be hit with an automatic £100 fine, which increases for every day you’re late, so it’s worth making sure you submit on time.
These are just some of the things you could implement to spend less on tax. Whether you do business with us or not, you should know how to optimise your property portfolio for maximum profitability.
We have systems in place to do your tax return for you, so you don’t have to pay an accountant. Give us a ring if you need any advice, we’re happy to help: 01633 265222.
*Please note that these are merely tips. We are not giving tax advice. For more info, go to: https://www.which.co.uk/news/2019/01/13-landlord-tax-tips-for-your-2017-18-tax-return/